Wednesday, January 27, 2016

A Puzzling Fall In Start-up Jobs

As our smart, loyal (and good-looking) readers know, it's not small businesses that create jobs it's small new businesses that do so.*From Real Time Economics:The Missing Startup Recovery

America’s entrepreneurs still hadn’t regained their footing six years after the recession ended, a troubling sign for an economy that once counted on fast-growing startups for employment and ideas.

Anew report by the Labor Departmentshows 232,000 establishment “births” in the second quarter of 2015, a slight decline from the prior quarter. Those accounted for 831,000 jobs.

As a share of the overall labor market, the number of jobs attributed to such births has fallen noticeably since before the recession, from about 12.5% of the total to a little more than 11%. Commerce Department data, which isn’t as current but reaches back to the 1970s, shows the trend stretching back decades.

With today's jobs report this topic is going to get spun like a top.(96,000 jobs 38 months after the recession ended? Come on)

Let's state what should be obvious right up front: Small business is no better at job creation than big business and because of the churn of bankruptcies and closures probably worse on a net basis.

Most small businesses don't grow very fast and can't create jobs.

The key variable, as even a cursory review* of the literature makes clear, is the age of the business.In particular firm births are correlated with both net and gross job creation and it is only because most new firms are small that small business is credited with job creation.

Because of the facts of who creates jobs, a policy initiative that focuses only on size without taking age of the enterprise into consideration will have little effect other than redistributing wealth to the wrong group of companies....

...A good place to start is "Who Creates Jobs? Small vs. Large vs. Young" (47 page PDF)Kelley Edmiston at the Kansas City Fed is also pretty good. (25 page PDF)A related topic "What Do Small Businesses Do?" by a couple University of Chicago econ guys (64 page PDF)